Demand-supply mismatch continues to keep pepper hot

G K Nair Kochi | Updated on September 04, 2011


Pepper market has witnessed an unprecedented price rise in recent days on reports of squeeze in availability in all the origins coupled with bullish sentiments emanating from the overseas markets.

Vietnam is reported to have exhausted much of its current crop after shipping out good quantities so far this year. Indonesian output, according to International Pepper Community reports, is also likely to be lesser than what was being projected earlier. Supply from Brazil is said to be disrupted by some financial problems. Add to this buyers were reportedly hesitant to buy at higher rates because of the additional cost involved in processing the pepper in the US. Also there were conflicting reports about the crop which some claimed is normal to better while others projected a lower output, trade sources said.

At the same time availability in India, which has huge domestic market capable of absorbing more than 50,000 tonnes of pepper a year, is also limited with exchange is the main source, market sources told Business Line.

They said the incessant heavy rains in the State, especially in the pepper growing high ranges, has put mainly the medium and small dealers in the primary markets and growers in serious problems. Indian parity in the international market was at around $7,600 a tonne and stayed in line with other origins which were also reportedly firmer.

In the domestic market also a similar situation is prevailing and since the winter season is round the corner the demand from the consumers as well as the industrial buyers is expected to pick up. This is, in fact, the peak demand period because of the festival and wedding season in many parts of the country.

Last week also, as usual, futures market witnessed high volatility with the prices fluctuating heavily almost every day. Sep, Oct and Nov contracts moved up by Rs 107, Rs 186 and Rs 227 respectively to close at Rs 33,335, Rs 34,046 and Rs 34,463 a quintal.

Spot prices during the week hit the highest ever price of 30,600 a quintal for ungarbled and Rs31,600 a quintal for MG1 on Friday. However, it declined on Saturday to close at Rs 30,400 and Rs 31,400 a quintal respectively.

They don't have modern drying and storage facilities and in their absence quality of the pepper gets deteriorated. This phenomenon has pushed up the demand for good quality high range pepper at premium price. Local arms of the multinational companies with multi-origin were buying from the high ranges. Similarly, investors were buying from the exchange platform at Sep delivery price. The wide gap between the September and October prices led many to switch over.

Overseas buyers were covering only the quantity required to meet their immediate requirements and were not maintaining big inventories because of the high prices prevailing for long. This was also made possible because of the shortest transit time taken of late at some of India's ports such as Mundra, they claimed. Thus, in the absence of sufficient inventory many of the buyers have no other alternative but to cover now for the coming winter, which in turn is keeping the market hot, they said.

According to the Agricultural Market Intelligence Centre (AMIC) of the Kerala Agricultural University attached to the Department of Agricultural Economics, College of Horticulture, Vellanikkara, “most of the small and marginal farmers have already sold their stocks when the prices were ruling high. The current stocks are held by large farmers, traders, exporters and investors. The uncertainty in the share market is driving a large number of investors into investment in commodities. This type of intensive speculation is a major driving force behind pepper prices being edged up, and fundamental corrections are therefore possible”.

All the factors indicate of a likely disequilibrium in the demand-supply scenario with the former outstripping the latter. Considering all these factors and based on the prevailing market sentiments and the econometric analysis of pepper prices at Kochi, the AMIC “feels that the price is expected to remain firm in the coming months as the demand outweighs supply. A price level of Rs 305-325 is indicated during the next three months from September to November”, Dr K Satheesh Babu, Professor & CCPI, said.

With pepper prices moving to record levels, a reassessment of the situation was made by the AMIC by analyzing price of ungarbled pepper prevailing at Kochi for a period of 17 years from January 1995 to August 2011, he added.

Published on September 04, 2011

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